Yes, The Debt Predicament Is Every Bit As Bad As You Fear
Sorry but this kind statement requires a level of faith.
Yes, it does, in more than one direction.
Consider this: in some cases, promising anonymity to the source is the only way that an important story can be told or even discovered.
When I studied journalism, many moons ago, we were taught that if we promised anonymity to a source, that was to be respected absolutely, and we should be prepared to go to jail for contempt of court rather than reveal the source.
So anonymous attribution was something to be used sparingly and with great care.
If possible we were advised to use anonymous sources as leads for further investigation so that we could eventually tell the story using sources that were fully attributable. But sometimes the only thing that works is to quote the anonymous source.
So treat anonymous quotes with caution, but also be cautious about reflexively dismissing them. Much depends on the integrity of the reporter, and the editors above him/her.
Should have used GAAP figures estimates. The real GAAP Deficit is around $5T yearly, maybe more.
Will you please discuss Modern Monetary Theory, which is gaining traction especially among the Democratic Socialist movement? Stephanie Kelton appears to be the face of the MMT movement. Is what they say valid? They essentially think that printing massive amounts of money is a good thing and can go on forever without consequence.
Here is a good MMT blog post:
Stephanie Kelton video:
My thought about MMT boils down to this:
As we know, there is no free lunch – finite resources, etc. Each system design of currencies, budgets, and economic systems are all about dividing up the pile of real stuff among the participants. You just have to ask yourself: in this new MMT system, who are the winners, and who are the losers?
Here is my thought. Since the discussion of MMT as a method for government budgeting centers around the central question of “how much inflation is ok”, the real discussion is, “how much of the pie can we take from savers, and hand to everyone else?”
How will that work out in practice? Winner and loser selection (the size of the slice that will be stolen from savers) will move from the Fed over to our fantastic set of politicans in Washington.
When politicians are handed – directly – the levers over how much they can steal in order to get a) elected, and b) funnel the proceeds to their cronies, given the current set of utterly corrupted Tools of Crony Capitalism currently in place, how do you think it will work out?
Republicans will steal from savers and hand it to their cronies, Democrats will steal from savers and hand it to their cronies – with a shocking amount of overlap between those groups of cronies.
And once savers figure this out – that the only constraint on inflation (i.e. saver theft) is what the current group of losers in Washington decide is the absolute maximum that savers will tolerate, with a “race to the bottom” in order to bribe voters and cronies in order to get elected – what do you think those savers will do?
What would you do? To use one of my favorite phrases:
Run, don’t walk.
But I don’t think it will happen. Holders of all that US treasury debt are rich people, and that debt would – very rapidly – lose value under this scenario. I think our elites want the levers to remain right where it is now: at the Fed.
All MMT does is describe modern monetary practice. The idea that the only constraints on borrowing are the effects it will have on the currency. This is true. Currently there is no attempt at shrinking the debt and, for all intents and purposes, the only limiting factor is how much we can borrow before lenders start demanding greater yield.
MMT seems to simply be an attempt to sum up our current irresponsible monetary practice into what seems like some kind of an intentional system that we embarked upon voluntarily instead of simply stumbling through and kicking the can down the road in order to avoid the consequences of our unsustainable actions.
Thanks for your thoughtful responses.
Can you help me with one other question? I don’t yet understand how interest rates are set. Does the Fed have total control over rates, or can the market force rates higher, even when the Fed has them set low?
The fed has alot of power over interest rates but that power is not absolute. The fed cannot afford to buy all bonds that are issued by the treasury so if nobody else is willing to buy debt at the current yield, rates will go up whether the fed likes it or not.
They can keep it up for a little while, but ultimately the tide cannot be held back forever.
I disagree. Who has control over the inflation-levers definitely matters. And it matters most to Big Money.
Imagine yourself in loose control over “big money.” You don’t want inflation getting out of control, as it did in the 70s when Nixon was able to get the Fed to do his bidding in order to win that 1972 election. In your role, you are the proud owner of trillions in medium and long term US treasury securities. Some inflation is fine, but too much inflation and you end up losing a ton of money when the bond prices of your portfolio collapses.
Given that’s your job description – superintendent of Big Money – would you want to place the control over inflation in the hands of our 535 squirrelly bought out politicians who could get a wild hair suddenly and decide to start printing money with wild abandon? Or would you prefer 9 guys from the banking industry?
Yeah, you’d pick the “9 guys from the banking industry” option. The tail risk of handing power to those squirrelly politicians is just too great.
This calculus is why I say MMT won’t happen. Big Money will use its power and influence to keep it from happening, and they currently have an iron fisted control over government.
Unless, of course, there’s some sort of real revolution…and 280 AOC-clones get elected…then all bets are off..and that’s when we move to the “run, don’t walk” option. That’s when the USD really does turn to confetti. The flight out of the USD would be a sight to behold.